Date : 19990319
Docket : T-477-99
BETWEEN:
HER MAJESTY THE QUEEN
Applicants
- and -
UCAR INC.
Respondent
REASONS FOR SENTENCE
[Delivered from the Bench at Ottawa, Ontario
on Thursday, March 18, 1999]
McGILLIS J.
[1] The accused UCAR Inc. ("UCAR Canada") has pleaded guilty to committing an indictable offence contrary to subsection 46(1) of the Competition Act, R.S.C. 1985, c. C-34, as amended.
[2]The charge in the indictment to which UCAR Canada pleaded guilty reads as follows:
THE ACCUSED stands charged:
THAT it, as a corporation carrying on business in Canada did, between approximately May 1992 and June 1997, in Welland, Ontario and various other locations in Canada, implement in Canada a directive, instruction, intimation of policy or other communication from a person or persons in a country other than Canada, such person or persons being in a position to direct or influence the policies of UCAR Inc. and such communication being for the purposes of giving effect to a conspiracy, combination, agreement or arrangement entered into outside of Canada between UCAR International Inc., a corporation incorporated under the laws of the United States of America, and a person or persons known and unknown, to prevent or lessen, unduly, competition in the purchase, barter, sale or supply of a product, graphite electrodes, which conspiracy if entered into in Canada would have been in contravention of s. 45 of the Competition Act, contrary to section 46 of the Competition Act, R.S. 1985, c. C-34, as amended.
[3] The facts admitted by UCAR Canada are set out in the agreed Statement of Facts and Allegations, which was marked as Exhibit No. 1 in these proceedings.
[4] On the basis of the agreed facts and the plea of guilty, I convicted UCAR Canada of the offence specified in the indictment.
[5] With respect to the question of sentence, counsel for the Crown and for UCAR Canada, who are all very experienced counsel, have jointly recommended to the Court that the appropriate sentence to be imposed in the circumstances of this offence is a fine in the amount of $11,000,000.00.
[6] In support of the joint submission on sentence, counsel for the Crown made detailed oral and written submissions. The document entitled "Sentencing Submissions of Her Majesty the Queen" was marked as Exhibit No. 2 in these proceedings. Counsel for UCAR Canada also made submissions in support of the proposed fine, in which he focussed primarily on factors in mitigation of the sentence.
[7] In order to determine whether the penalty recommended in the joint submission on sentence ought to be imposed on UCAR Canada by the Court, the facts surrounding the commission of the offence must be considered.
[8] UCAR Canada is a subsidiary of UCAR International Inc. ("UCAR International"). UCAR International, together with its subsidiary companies, is the world's largest manufacturer of graphite electrodes and carbon electrodes for use in steel and aluminum production. It is also involved in the production, distribution, sale and supply of graphite electrodes throughout the world. Graphite electrodes are consumed primarily in the production of steel in electric arc furnaces, the steelmaking technology used by all "mini-mills", and for steel refining in ladle furnaces. UCAR International has manufacturing plants on five continents and sells its products to the steel, metal, ferronickel and thermal phosphorous industries in more than seventy countries. UCAR International employs approximately 5,500 people worldwide, and had sales in 1998 totalling U.S.$947,000,000.00.
[9] UCAR Canada sells and supplies graphite electrodes in various diameters to steel producers, foundry operators and other users of electric arc and ladle furnaces in Canada and its export markets.
[10] In Canada, UCAR Canada and its major competitor S.G.L. Canada Inc. ("SGL") controlled over 90 per cent of the Canadian market for high-power graphite electrodes. The total sales in Canada for graphite electrodes during the five-year period of the conspiracy were approximately C$440,000,000.00, or C$88,000,000.00 per year. UCAR Canada's sales of graphite electrodes during the five-year period of the conspiracy were approximately C$214,000,000.00.
[11] In or about May 1992, representatives of UCAR International, SGL and other graphite electrode manufacturers met and entered into an anti-competitive conspiracy, combination, agreement or arrangement ("agreement") which would have the effect or result of lessening competition substantially in the Canadian market and elsewhere. At various times from about May 1992 until at least June 1997, representatives of UCAR International and SGL engaged in conversations and attended further meetings with representatives of other producers and suppliers of graphite electrodes in order to implement the unlawful agreement.
[12] The agreement continued from about May 1992 until at least June 1997. Its principal terms were as follows:
1to fix and maintain prices and to coordinate price increases for the sale of graphite electrodes in Canada and elsewhere; and,
2to discuss and share among the parties to the agreement information about the volume of sales of graphite electrodes made or to be made by each of them in Canada and elsewhere.
[13] At meetings subsequent to the meeting in May 1992, the agreement was confirmed, adjusted and maintained. At those meetings, the parties further agreed as follows:
1to charge prices of graphite electrodes at certain levels and otherwise to increase and maintain prices in Canada and elsewhere;
2to eliminate discounts from the fixed selling price in Canada and elsewhere;
3to allocate among themselves the approximate volume of graphite electrodes to be sold by each corporate conspirator in Canada and elsewhere;
4to divide markets among themselves, on a region-by-region basis, and in each region to designate a company to fix the price that others in that region would follow;
5to restrict their graphite electrode production capacity and to restrict non-conspirator companies' access to certain electrode manufacturing technology;
6to employ methods to conceal the agreement, including the use of code names;
7to exchange sales and customer information for the purpose of monitoring and enforcing the agreement; and,
8to issue price announcements and price quotations in accordance with the agreements reached.
[14] The participants to the agreement were certain senior executives of the organizations. They kept confidential all knowledge of the agreement, their meetings and discussions. In order to ensure confidentiality, "code names" for the participants were established, documents were destroyed, and few notes were retained. The meetings included "working" discussions at which the participants would meet to discuss the implementation of the agreement or to resolve specific price, marketing, supply or production issues. There were also other such meetings between senior executives, including Robert Krass, the former Chief Executive Officer of UCAR International, and Robert Koehler, his counterpart at SGL.
[15] In order to give effect to the agreement regarding the prices to be charged in Canada and the policies to be implemented regarding non-discounting to customers, UCAR International gave UCAR Canada directives, instructions or intimations of policy ("directives"). UCAR Canada implemented those directives, thereby ensuring that a regime of uniform pricing between UCAR Canada and SGL existed in Canada.
[16] In order to implement the directives, UCAR Canada and SGL announced to their Canadian customers, at or about the same time and on several occasions throughout the conspiracy, identical prices and implementation dates for their 350 mm to 600 mm diameter graphite electrodes, at an announced price of $2645.00 per metric tonne, beginning in July 1992 and continuing until at least June 1997.
[17] In 1997, UCAR International formed an independent committee of its Board of Directors to examine its conduct with a view to determining whether it had engaged in inappropriate or illegal activities in relation to the marketing of graphite electrodes. After an extensive worldwide investigation, UCAR International's two most senior officers either resigned or were removed from all of their positions in the organization. Within weeks, UCAR Canada approached the Competition Bureau to begin the discussions leading to the current resolution of this matter.
[18] UCAR International and UCAR Canada have already co-operated and have promised to continue to cooperate with the Director of Investigation and Research in the inquiry being conducted into the graphite electrodes industry in Canada. Due to the complex nature of that international industry, UCAR Canada's cooperation has assisted and will assist in the investigation of other individuals and corporations for violations of the Competition Act in relation to the manufacture, production, distribution, sale and supply of graphite electrodes.
[19] The facts in this matter reveal that UCAR Canada, a large and sophisticated corporation controlling a significant percentage of the Canadian market for high-power graphite electrodes, voluntarily and deliberately participated in a sophisticated and lengthy international conspiracy with other competitors in order to prevent or lessen competition unduly throughout the world in the graphite electrode market. The anti-competitive agreement was masterminded and implemented by the most senior executives in UCAR International, including its former President and Chief Executive Officer, as well as its former Chief Operating Officer. During the period of the conspiracy, UCAR Canada enjoyed sales totalling approximately C$214,000,000.00. The volume of commerce affected by the anti-competitive conspiracy was therefore significant, and adversely affected Canada's important steel and aluminum industries.
[20] Despite the gravity of the offence committed by UCAR Canada, there are important mitigating factors in its favour. In particular, UCAR Canada voluntarily revealed its involvement in the anti-competitive conspiracy and agreed to co-operate with the Competition Bureau in the continuing inquiry into the conduct of other alleged co-conspirators. Furthermore, UCAR Canada acknowledged its wrongdoing and accepted responsibility for its actions by pleading guilty at a very early stage in the proceedings, thereby avoiding a protracted, complex and expensive trial. Finally, UCAR Canada has offered to make restitution to its Canadian customers in the amount of approximately C$19,000,000.00. To date, UCAR Canada has made restitution in the amount of C$4,000,000.00.
[21] Having considered the facts underlying the commission of the offence and the factors to be considered in imposing sentence, including general and specific deterrence, the size and influence of the accused corporation, its role in the conspiracy, the duration and scope of the conspiracy, the deliberate nature of the criminal conduct and all of the mitigating circumstances, I am satisfied that the fine, jointly proposed by counsel, is an appropriate and reasonable penalty to be imposed on UCAR Canada.
[22] I therefore sentence UCAR Canada to pay a fine in the amount of C$11,000,000.00, payable forthwith.
D. McGillis
Judge
OTTAWA
March 19, 1999